Know Your Client: Talking to Women about Investing

If you Google this question, the answer is always “Yes.” But my view is that it depends on the conversations that occur prior to any investment.

All money managers have a rule referred to as “KYC,” or Know Your Customer (sometimes the last word is Client). Getting to know our clients involves talking to them, having conversations. However, if we do not understand how women think about investing, our conversations may be completely wrong and lead to dramatically different portfolio decisions.

For example, the male clients of Portfolio Manager A have different investment portfolios than the female clients. Why? “Because women are much more conservative,” says Portfolio Manager A. “They don’t like to take risks so I advise them to own more bonds.”

The male and female clients of Portfolio Manager B have investments that vary according to many factors, but gender isn’t one of them. They have more or less the same percentage weightings in the various asset classes and similar types of security selections with basically the same returns.

Which adviser is offering the right advice? Some advisers, both male and female, would agree with Portfolio Manager A. There is much debate on the topic, but there is not a wealth of hard data available on gender and investing.

The study “Why Do Women Invest Differently Than Men?” asserts that “an increasing number of financial studies conclude that women invest their asset portfolios more conservatively than their male counterparts, a finding that is generally consistent with the ‘common wisdom’ of financial services providers.”

But if we keep reading, it turns out that the “common wisdom” may just be more common than wise:

“Gender differences in investing and risk-taking can be attributed to many possible causes but, ultimately, it can be shown that all the explanations have their root in discrimination and/or differences in individual preferences. . . . Greater efforts need to be made, particularly in the design of surveys, to acquire information that allows researchers to distinguish between the influence of discrimination and individual choice, as well as the determinants of choice.”

Just how much are we advisers influencing our clients’ investment strategies with our own biases? Let’s be honest. Perhaps we should ask better questions. Perhaps we should really listen to the answers.

If we do a more thorough job of understanding the objectives of our women clients, there will likely be a much smaller gender skew in our investment recommendations and client portfolios, or maybe even none at all. The best advisers will focus on the actual needs and preferences of individual clients first, with gender being less of a factor.

Do men and women communicate differently?

Oh yes. The confusion around gender and investing results primarily because of the differences in how men and women communicate about money.

My study, “Financial Lives of Girls and Women,” reveals that when it comes to learning about financial matters, most women do not watch financial news on the television, take financial courses, or spend as much time talking about their winners and losers.

Women tend to be more interested in learning about financial matters by reading or listening to real stories from real people. They also share those lessons with their friends or with the next generation. Stories, narratives, relationships, and family life are central.

Traditionally, women are self-deprecating when asked about financial accomplishments, but ask a man the same questions and he is often quite vocal about his investing success. While women may not feel the need to discuss their stock picks, they do care deeply about investing and their financial futures.

Hagel goes on to explain, “The feminine communication style is richer and more nuanced — it focuses on metaphors, stories, and images as a way to engage the information and achieve a deep understanding of the essence of events and environments. It is most effective when feelings and intuition are integrated and connections are deepened.”

Charlotte B. Beyer, founder of the Institute for Private Investors (IPI), spoke about the skills needed to perform as an adviser:

“If the advisor has a genuine desire to help the client reach her goals, then what follows is a journey of discovery, finding out what goals and time frames are best for this client. The emotional quotient needed to perform the job of an advisor is enormous. Women seem more comfortable having that deeper, more meaningful dialogue.”

Clearly, when it comes to communication, having the ability to go deeper is critical.

Who is the woman client of today?

According to my research report, “The Future of Women and Finance,” based on qualitative interviews with 50 men and women global leaders, today’s primary target market is the “financially confident woman.” What does this woman look like? She is more financially literate than she has ever been. She expects to continue to make more money — not only through her own investments, but through her salary, her bonuses, her stock options, and, eventually, the sale of her business.

Around the world, brands are investing in social media and advanced data analytics because they understand that women are often as wealthy as men, are controlling more money than ever before, and are increasingly their largest clients.

What do these women think about?

Stella Dawson, a journalist and media strategist at Stella Hope Dawson, might be a perfect example. She explains:

“I would love to ‘do good’ but I also need to make a good return on my investments. What if you offered me a choice between two opportunities with equivalent return potential but one was more ethical than the other? Now I’m interested.

“Major corporations that choose to be leaders in areas like human rights, women’s advancement, will generally be more attractive investments for women. We need more publicly traded companies to be better at issues such as human trafficking or labor rights and to embrace full disclosure of their social impact in their reporting. . . . The financial industry needs a huge redesign in terms of how they think about their offerings; they need to incorporate financial planning from a woman’s perspective. For example, women want to address their concerns over their life cycle, which is different from that of men. Think about extreme old age — we generally live longer than men, and are more likely to be alone. . . . We need more innovative thinking from a woman’s perspective.”

My research findings are clear: If we want to attract more female clients, we need to help them align their investments with their values — this is a language they understand. Women want to have a “relationship to an investment opportunity.” Their investments have to resonate with their personal values and they must be engaged emotionally in the investment decision.

I have spoken with regulatory experts over the years, and one conversation jumps out at me: We were discussing the concept of misselling. It is a great word that should be part of every adviser’s vocabulary. My interview subject explained why it is so dangerous to gather assets if the customer base is not stable: “If we don’t properly understand our customer and he or she panics and sells for whatever reason, there may be liquidity issues, and this can have a dramatic negative impact on the whole marketplace. We must stop selling products that don’t meet client needs.”

Meeting client needs: Isn’t this the most important part of our job as advisers? And to understand a woman’s needs, we need to speak her language.

Oh and one final piece of advice: Women love to share. So if we do a good job advising them, they may bring along assets from their parents, their siblings, and everyone they know.

All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Barbara Stewart, CFA, is a researcher and author on the issue of women and finance. She will release the ninth installment of her “Rich Thinking” series of monographs on International Women’s Day, 8 March 2019. Stewart is also a consultant who uses her proprietary research skills to help large global financial institutions seeking to transform themselves. She is a frequent interview guest on TV, radio, and print, and she is a columnist for Golden Girl Finance. Stewart is on the Advisory Board for Kensington Capital Partners Limited in Toronto. All of Stewart’s research is available on Barbara Stewart.

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